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China Buyouts Exceeding $23 Billion Leave Investors Unfulfilled
Perspective | 23 June 2015

China’s largest online matchmaking site has surged 60 percent since its founder offered to take it private. Shareholder Peter Halesworth feels entitled to more.

Haiyan Gong, formerly co-chairwoman of Jiayuan.com International, wants to take advantage of China’s hot equity market by moving the stock out of New York to an exchange there.

While she’s raised her bid to US$7.20 from US$5.37 per American depositary receipt, that’s still far short of the US$11 listing price in 2011.

Halesworth, the founder of Heng Ren Investments, which invests in Chinese companies, said the offer shortchanges shareholders by at least 63 percent.

A record 23 companies have received offers to delist since the beginning of the year, aiming to return to China’s local exchanges to get higher valuations.

While the takeover bids often lead to rallies, some U.S. investors say the offers don’t reflect the stocks’ real worth and deprive them of opportunities to benefit from the companies’ longer-term growth.

“The sell-high-and-buy-back-low deals make U.S. investors feel they’re being taken advantage of,” said Boston-based Halesworth, who in an open letter urged Jiayuan.com’s special committee for evaluating the takeover proposal to reject it.

This year’s go-private deals, which have a total value of US$23 billion, are offering investors a 24 percent premium over the companies’ average trading prices prior to their announcements, the lowest since 2010, according to data compiled by Bloomberg.

Sixty percent of the bids were below the targeted firms’ initial public offerings.

Shanghai Surging

The rush to leave U.S. exchanges comes after the Shanghai Composite Index surged the most in the world over the past year as policy makers took measures to bolster the economy and widened market access to foreign investors.

While the benchmark gauge tumbled 13 percent last week, the most since 2008, it’s still up 121 percent in the past 12 months. That compares with a 30 percent gain in the Bloomberg index for the most-traded Chinese companies in the U.S.

Renren Inc, owner of a social networking website similar to Facebook Inc, received a takeover bid from two of its executives on June 10. The offer of US$4.20 per ADR was less than one-third of its IPO price four years ago.

The bid was so low that it’s “embarrassing” for Renren’s shareholders, Henry Guo, an analyst at Summit Research Partners, said by e-mail. Since then, the Beijing-based company’s ADRs have declined 6.1 percent.

Cord Blood

In April, Jayhawk Capital Management, which owns a 9.1 percent stake in China Cord Blood Corp, recommended independent directors reject a privatization proposal from a chairman-led buyer.

The offer of US$6.40 per share was 62 percent below the hedge fund’s projected fair value. China Cord Blood sold shares in its 2006 IPO for US$6 each.

Investor-relations managers at Jiayuan and China Cord Blood didn’t respond to e-mails seeking comment.

Cynthia Liu, a spokeswoman for Renren, couldn’t be reached after regular business hours in Beijing by phone and e-mail.

Ingrid Yin, a managing partner at MayTech Capital Management in New York, said the companies’ possible re-listing in China’s mainland or Hong Kong market will help them unlock valuations that may not be appreciated by foreign investors.

“U.S. investors will think companies from China, an emerging market, have a lot of risks, while for local Chinese investors, it’s easier for them to do due diligence and they have a better understanding of the risks,” Yin said.

In his April 8 open letter to Jiayuan.com, Halesworth said he was a “long-term and patient” investor who stuck with the company even when it was struggling last year.

The buyout proposal will “freeze out current minority investors from benefiting from the long-term investment opportunity,” he wrote.

Companies seeking local listings in China after buying out U.S. shareholders “are being shortsighted,” Halesworth said last week. “They’re chasing valuations and have no guarantee that they’re permanent.”


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